Draft Public Bodies (Merger of The Gambling Commission and the National Lottery Commission) Order 2013
The Committee consisted of the following Members:
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Bradshaw, Mr Ben (Exeter) (Lab)
† Burstow, Paul (Sutton and Cheam) (LD)
† Crouch, Tracey (Chatham and Aylesford) (Con)
† Efford, Clive (Eltham) (Lab)
Farrelly, Paul (Newcastle-under-Lyme) (Lab)
† Griffiths, Andrew (Burton) (Con)
Macleod, Mary (Brentford and Isleworth) (Con)
† McDonnell, John (Hayes and Harlington) (Lab)
Mitchell, Austin (Great Grimsby) (Lab)
† Morgan, Nicky (Loughborough) (Con)
† Morrice, Graeme (Livingston) (Lab)
Morris, David (Morecambe and Lunesdale) (Con)
† Mosley, Stephen (City of Chester) (Con)
† Robertson, Hugh (Minister of State, Department for Culture, Media and Sport)
Simpson, David (Upper Bann) (DUP)
† Thornton, Mike (Eastleigh) (LD)
† Tomlinson, Justin (North Swindon) (Con)
John-Paul Flaherty, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
Kirby, Simon (Brighton, Kemptown) (Con)
First Delegated Legislation Committee
Monday 2 September 2013
[Jim Sheridan in the Chair]
Draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013
4.30 pm
The Chair: Before we begin, I would like to place on the record that I am a member of the Select Committee on Culture, Media and Sport, which reported on this draft order in July. I am here today in my capacity as a member of the Panel of Chairs and as such will perform my duties impartially. I call the Minister to move the motion.
The Minister of State, Department for Culture, Media and Sport (Hugh Robertson): I beg to move,
That the Committee has considered the draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013.
It is a pleasure to serve under your chairmanship, Mr Sheridan. In view of your introduction, may I say what a pleasure it is to serve under the chairmanship of an expert? I fear that you probably know more about the order than the rest of us. The Government propose to use the powers in the Public Bodies Act 2011 to merge the National Lottery Commission and the Gambling Commission into a single body. Having said that, it is only fair to admit at the outset that the project has had a pretty long gestation period. A merger was originally suggested by the previous Government in the 2010 Budget and was initiated in the 2011 Act. The lengthy consultation period raised no significant public or industry opposition to the merger. It was then considered by the Lords’ Secondary Legislation Scrutiny Committee, which reported that the merger successfully met the tests set out in the 2011 Act. As you said, Mr Sheridan, the CMS Committee considered it and felt that the case for the merger was justified.
Both the Lords Committee and the CMS Committee suggested that my Department publish guidance on working practices to manage any concerns about real or perceived conflicts of interest; that was done. The Gambling Commission responded positively, and all letters relating to such guidance and the method by which concerns will be managed are available on the Gambling Commission website. At the outset, I thank your Committee, Mr Sheridan, for scrutinising the order. I have responded in writing to the Committee Chair and that letter was circulated to Committee members in August.
What is this about? Despite having slightly different remits, the functions of the two commissions are broadly similar, hence the consensus that the merger is broadly sensible, and that is particularly true with regard to consumer protection. The Government believe that merging the two bodies will provide a number of advantages. In addition to the economies of scale, with some modest savings, the merger will provide important benefits to consumers. A single regulator will be able to deliver a common approach to consumer protection where there
are common regulatory issues, such as under-age and excessive play. A merged regulator will be able to commission research across the sectors and, where appropriate, provide effective, in-the-round policy co-ordination and advice. Over time that will be particularly valuable, as technological developments and online gambling have demonstrated a growing convergence between traditional gambling and lottery-type products.Importantly, the merger will not change the distinct way in which the national lottery and the gambling industry are currently regulated. The merged body will retain the existing statutory functions exercised by the two commissions and will continue to regulate using existing legislation. It therefore follows that the decisions of the merged commission will continue to be made specifically within the separate and appropriate legislative frameworks: the National Lottery etc. Act 1993 for national lottery decisions; and the Gambling Act 2005, put through under the previous Government, for other gambling concerns. To support effective regulation within the legislative regimes, the merged body will be absolutely clear under which statutory regime a given decision is taken. That will give stakeholders assurance and confidence that the merged commission has appropriate principles in place to manage effectively the regulation of both the national lottery and gambling.
I have written to Philip Graf, chair of the Gambling Commission and chair designate of the merged body, and we have agreed a set of principles which will ensure that the merged body is able to act in a way that avoids any perceptions of bias, and gives assurance to operators that their data are treated with due confidentiality. In summary, the merger will provide policy benefits and deliver savings, with sufficient safeguards to protect the public’s interest in the national lottery and a safe and fair gambling industry. On that basis, I support the merger, and I have no concerns in recommending the draft order to the Committee.
4.35 pm
Clive Efford (Eltham) (Lab): May I start by saying it is a pleasure to serve under your chairmanship, Mr Sheridan, for what I think is the first time in all the years we have served in the House?
I, too, express my gratitude to the Select Committee of which you are a member for its work on this important issue. Gambling and the national lottery are important pastimes for many people. We have a relatively corruption-free gambling system, which is extremely well regulated. The national lottery has become part of the fabric of our country. It is therefore important that we scrutinise the merger of the two important organisations before us.
As the Minister said, the proposal has been around for many years, and it was considered by the previous Government. Although it did not make it on to the statute book, we are here to discuss it today. It is important that we look at these issues. Despite the relatively low number of responses to the consultation, a number of bodies have raised concerns, and it is only right that we debate them.
In the debate in the House of Lords, Baroness Jones of Whitchurch highlighted a number of the concerns that exist about gambling as the merger takes place. The offshore and online industry is growing fast and is already worth £2 billion a year. There is concern about
the impact of the health lottery on money for good causes. There are growing concerns about gambling addiction. There are also concerns about the need to review the proportion of money going from society lotteries to good causes in the near future. All those issues will impact on the new organisation’s resources.The Government first proposed the merger in 2010. Since then, we have seen a massive expansion of online gambling, as Baroness Jones said. The Gambling (Licensing and Advertising) Bill will also make demands on the new Gambling Commission’s resources. There are growing concerns about fixed-odds betting terminals in betting shops and the concentration of betting shops close to areas of deprivation. Will the Minister tell us whether the savings set out in the impact assessment and anticipated by the Government in the Budget are still achievable two or three years on from when the proposal was initially made?
There are clearly opportunities for savings from efficiencies, but a number of issues have highlighted the separate commissions’ different priorities. The Gambling Commission decided to license the health lottery, but it is impossible to conceive of a scenario in which the National Lottery Commission would have taken such a view. Similarly, when the monetary increases for the society lotteries were considered, the National Lottery Commission, for obvious reasons, opposed them, but the Gambling Commission did not. In its submission to the Select Committee, Business in Sport and Leisure said that the National Lottery Commission’s role in maximising income for good causes through the national lottery could conflict with the leisure industry’s desire to expand opportunities for gambling. Will the Minister elaborate on how the merged Gambling Commission will formulate its position on such issues?
The Gambling Commission’s response to the request from the Select Committee and the Minister to set out its governance arrangements was produced very late, and it was not available when the matter was debated in the Lords in May. It is important that licensees have confidence in their regulator; the impact assessment the Government published says they need to have an open and trusting relationship with the regulator. That can be achieved only if the licensees have complete confidence that any information of a commercially sensitive nature will be secure and not leaked to other parts of the organisation.
The solution proposed by the Gambling Commission is to separate those important roles and to create a sub-committee of the board. Will that sub-committee be made up solely of members of the board? We are told that important decisions will be taken by the full board. Will the members of the sub-committee be present when issues involving a potential conflict of interest are considered? How will the Minister monitor effectively the performance of the Gambling Commission to ensure that there are no conflicts of interest and that one area of responsibility does not gain priority over another? It is also important that staff be alert to the possibility of such conflicts of interest. Will they receive the appropriate training to alert them to any potential conflicts of interest in their handling of confidential information?
Savings have been achieved through the co-location and merger of the two bodies, but as the Select Committee points out, not as much as the Government first anticipated. It had previously called for the Gambling Commission
to make efficiency savings and repeated that point in its recent report. The National Lottery Commission moved its offices in January 2012, sharing them with the Gambling Commission, and they merged their support services. According to annexe 2 of the impact assessment, the bulk of the savings appear to come from accommodation contracts arising from the co-location. The staff savings could well have been a result of the review of the management of the National Lottery Commission, without the merger.The Select Committee suggested that significant savings can be made in the future. The National Lottery Commission has a budget of £2 million per annum—down from £4.2 million in 2010—and employs 15 staff, which is down from 34 in 2010, according to the assessment. The Select Committee report cites 20 staff, but that may include the five commissioners, hence the difference in the figures. That is a per capita cost to the National Lottery Commission of £100,000. Let us compare that with the Gambling Commission budget, which is £13 million, and its staff of 200 plus 10 commissioners; that comes to a per capita cost of £63,000. This is a crude calculation, but the difference in those costs is significant. Can the Minister explain why that difference exists? I have seen a number of attempts to explain it, but none has satisfied me. Why is that cost so significantly different, when the National Lottery Commission is dealing with one organisation, albeit a national one with many outlets, and the Gambling Commission deals with several different forms of gambling across thousands of different operators?
The National Lottery Commission has reduced its expenditure from £4.2 million, but what is the cause of the extreme difference? Is it consultants, advertising, or buying in other forms of expertise? In addition, are the pay scales the same as those at the Gambling Commission? If not, how was the difference overcome when the merger took place? Furthermore, are the anticipated savings entirely due to the merger, or could they have been achieved without it? Could the organisations have kept their separate identities, and just been co-located and made to share support services?
The Gambling Commission is an independent body, but the Minister will retain powers over the national lottery on operational matters. How will he ensure that he does not interfere with the independence of the Gambling Commission when he exercises those powers? There is to be a single chief executive and a single set of accounts, so it is easy to see how competing demands on resources against a backdrop of demands for efficiency savings could lead to conflict within the new organisation. How will the separate functions of the two organisations be maintained in that arrangement?
The impact assessment refers to a number of additional first-year costs for accounting, audit work, governance assurance work, payroll consultancy, specialist advice on corporate affairs, and the migration of the National Lottery Commission’s web content. There is also reference to
“the diversion of senior resource from normal regulatory business into extracting the economies of scale and melding the organisations into one”.
How is that for an example of plain English speaking? I had to read it several times. Fees are mentioned for consultancies that have to be bought in for all of those
functions. They are referred to as part of the costs of the co-location and merger, but is there any prospect of their continuing long into the future and therefore reducing the savings that can be achieved? Is there an end point to those consultancies?I note that in the Minister’s letter to the Chair of the Select Committee he refers to concerns about income for good causes suffering as a consequence of the merger, and he states that that is more likely to happen as a consequence of market forces. Will there be a mechanism through which those within the merged Gambling Commission with responsibility for the national lottery will be able to raise their concerns independently if they feel that things are not being run in the best interests of the national lottery and of good causes?
The cost of running the National Lottery Commission is reimbursed from the national lottery distribution fund. How will that be monitored to ensure that money that should be going to good causes does not end up subsidising the general performance and costs of the Gambling Commission?
Paragraph 15 on page 5 of the impact assessment talks about the benefits of the merger in terms of understanding new technology, sharing information and ensuring that there is a common regulatory response. In his opening remarks, the Minister referred to that as one of the key benefits of the merger. At the end of the paragraph, however, it also states, in brackets, that
“the public benefits of the National Lottery and returns to good causes can justify certain regulatory standards being set at a higher level”.
How will it be possible to maintain regulatory standards at different levels in that way? Is it practical, and can it be achieved?
The age limit for the lottery is 16, and for most forms of gambling regulated by the Gambling Commission it is 18. Members of the Select Committee raised that matter with Mr Graf from the commission, and he indicated that he would review it. Exactly what prompted the review? Was it the merger? What exactly will it consider? I am sure that the Minister agrees that there would be widespread concern if there were any changes, to the age limit on entering a betting shop for instance, particularly given the concerns about the impact of the FOBTs in such shops.
The National Lottery Commission asked that a review of society lotteries be carried out before the merger, so why has that not been done? There is clearly a concern that decisions could be influenced under the new regime by the fact that the organisation has responsibility for the national lottery.
In conclusion, the merger might prove to be beneficial for both the gambling industry and the national lottery, but questions remain that are worthy of answers and I look forward to the Minister’s response.
4.50 pm
Hugh Robertson: I thank the hon. Member for Eltham for his remarks. I entirely agree with his analysis of the issues affecting the gambling industry, particularly the growth of online gambling, which will clearly concern us all in the years ahead.
A lot has been said about FOBTs in the House and we may return to that subject in Culture, Media and Sport questions on Thursday. I am clear about the potential danger that they pose, but—as the hon. Gentleman will be aware—the Government have to proceed on the basis of firm evidence, and the triennial review of stakes and prizes that we just concluded did not contain any such hard evidence. We have asked the Responsible Gambling Trust to do a specific piece of work on that, which I hope will be available next year and—although it is difficult to prejudge that before it has happened—will give us the clarity that we need.
The first question the hon. Gentleman asked was whether the savings are achievable. Absolutely, I believe that they are. It is fair to say that the primary benefit of this measure is to produce a more coherent, regulatory approach to the industry and, in turn, better consumer protection. He is absolutely right to say that the main savings come from co-location, shared back-office costs and the board. We suspect that they will probably be in the range of £0.33 million over 10 years when netted out—taking into account the costs, redundancy payments and all the rest. I do not think that those savings are necessarily the prime driver, but they will be there.
The hon. Gentleman raised a series of good and perfectly reasonable questions about how the new body will operate. Clearly, the two legislative regimes—the one put in place to regulate the national lottery and the one put in place by the Gambling Act 2005—will continue to regulate the industry. The new body will effectively have a Chinese wall between the two operations. I looked at that carefully, as did all the various Committees who examined it, and the website now contains a set of clear operating instructions on how that is to happen. I am absolutely confident that it can continue to operate in the way that was intended under the previous legislation.
The hon. Gentleman asked how the merged Gambling Commission would formulate policy and it would be by exactly those criteria. Gambling policy will be managed by the part of the new body that looks after gambling. National lottery policy will be looked after by the part that looks after the national lottery. I will exercise oversight in exactly the same way that I do at the moment. There will be no change to the way that Ministers in successive Governments have managed their relationship with the Gambling Commission, and I can confirm that staff will receive the appropriate training in how to manage conflicts of interest.
On pay scales, the hon. Gentleman is right that they have historically been different between the two bodies, as is the case for other bodies that have performed different functions in different parts of the country. The pay scales will come together as the new body takes up its jobs.
On the independence that the Gambling Commission has from the Minister, there will be no change whatsoever in that relationship.
The hon. Gentleman is correct that consultancy costs will fall. There was a period when there was a necessary requirement for some consultancy work while all this was being done, but those costs will fall off.
The hon. Gentleman is absolutely right to highlight the importance of maximising income for good causes. That will be a key priority. The national lottery has proved to be such an important part of national life for
so long now that nobody would tolerate a fall in contributions to good causes, in particular if that was related to an increase in administrative costs. I assure the Committee that there will be no diversion of money from good causes. Nor are there any plans to change the age limits.At the end of his remarks, the hon. Gentleman touched on the issue of society lotteries. I hope that in the autumn we will be able to announce the relevant consultation, which will look at the relationship between society lotteries and the national lottery.
Clive Efford: May I just take the Minister back to the issue of the sub-committee and the main board with regard to key policy areas? For instance, it has been said that the decision about the health lottery will be taken to the main board of the commission rather than being dealt with by the sub-committee that deals with the national lottery. Will the Minister say a little more about how those sorts of issues will be resolved while maintaining the separate identity of two organisations under the one umbrella?
Hugh Robertson: The consultation that we will launch in the autumn will look across that entire area and will, I hope, produce a set of recommendations; it will be for Government to implement those recommendations. Decisions about all the things that affect society lotteries—the amount of money they give to good causes, and so on and so forth—are policy decisions that Government will make; the Gambling Commission will then regulate those matters on our behalf. I hope that there will not be a conflict of interest inherent in that situation. However, if I have missed the point that the hon. Gentleman is after, I am happy to give way again.
Clive Efford: I am grateful to the Minister, because this is an important point: there was clearly a conflict between the two different organisations about, for instance, the monetary increases for society lotteries. The priority for the National Lottery Commission—protecting the national lottery and money for good causes—clearly conflicted with the view that was taken by the Gambling Commission, which felt that raising the amount of money that could be raised and given in prizes by society lotteries would be beneficial not only to the lotteries but to the good causes that they finance. That is a clear conflict of policy, which does not come to Ministers. How will the organisation itself resolve such a conflict?
Hugh Robertson: If I am correct, the review that will take place over the autumn will make a series of recommendations about the amounts that society lotteries can charge, the amounts of money that they give to good causes and so on. Once the overall regime has been set by that review—and clearly any changes made to the current regulations will come before Parliament in the normal way—it will be down to the main board of the Gambling Commission to take those decisions. Under the conflict of interest regulations that form the body of the exchange of letters between myself and the Chair, the commission has appropriate standing operating procedures to deal with that process. The sub-committee will inform the board’s decision, but ultimately that decision will be for the main board to take.
On that basis, I commend the order to the Committee.